Managing Organizational

Environment in Industry.
- G Ojha

 Organizational environment is the set of forces surrounding an

organization that have the potential to affect the way it operates
and its access to scarce resources. The organization needs to
properly understand the environment for effective management.
It is not always clear as to who or what is included in any specific
organizations relevant environment

There are Two Types of Environment.

Internal
External
A. Task Environment.
B. General Environment.

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International
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General Environment.
Government regulations, Laws, Policies and activities
influence organizational performance in a significant way.
Technological environment includes changes in technology
that affect the way organizations operate and service they
provide.
The economic dimensions include GDP, Wage rates,
Unemployment rates, Taxes, Monetary and Fiscal Policy,
Consumer price index, Interest rates & Inflation.

Task Environment I.
It includes those elements which have a direct
working relationship with the Organization. Some of
the critical variables in task environment are:
Customers
Suppliers
Labour
Competition

Task Environment II.

Research shows the workers with high level of
competencies, knowledge and training increase the overall
performance of organisation.
Analysis of customer profiles enable the organizations to
deliver goods/services that best suit the customer need.
A suppliers pricing strategy does affect the organizations
revenues.
Competitors strategy greatly affects an organizations
external environment.

Internal Environment.
It consists of employees, management and the shared
organizational culture.
Analysis of internal environment enables the top
management to assess the strengths and weaknesses of
the organization.
This assessment has implication for human resource
management policy, procedure and employee training &
development.

Environmental Scanning.
Such scanning is significant for planning. This also
enables proper setting of goals and adaptation of
strategy in the decision making process.

Contingency Theory.
To manage its environment effectively, an organisation
should design its structure to fit its environment.

Resource Dependence Theory of

Pfeffer and Salancik (1978)
The two basic principles in the resource dependence
theory are as follows :
A. Organizations respond more to forces/element in the environment
which control critical resources.
B. Managers manage dependencies to ensure survival and greater
autonomy.

The
three
important
dependence are :

factors

A. Importance of resource.
B. Extent of discretion over resource allocation.
C. Paucity of alternatives.

in

determining

Specialists Vs. Generalists.

There are two types of organizations : Specialists and
Generalists.
Specialists offer one service/niche.
Generalists have various services/products and have
advantage over specialists in times of change.
But Specialists can quickly move into a new niche and
exploit it to their advantage.

Environmental Uncertainty.
This uncertainty increases or decreases as per variations
in the following parameters :
Homogeneity Vs. Heterogeneity (the number & diversion)
Stability Vs. Turbulence (rate & magnitude of change)
Resource Security Vs. Abundance (availability of reason)
Hostility Vs. Supportiveness (Extent of competition and level of
acceptance of the organization)

Uncertainty is the highest when the Environment is both

unstable and complex.

Environment & Organization

Structure I.

Organizations have to sense changes in their environments

and make appropriate adjustments, necessary.
Changing environments produce uncertainty. Alternations in
the organizational structure is a major tool for controlling
uncertainty.
If uncertainty is high, the organization will be designed
along flexible lines in order to adapt to rapid changes. The
organic structure would be the choice.
If uncertainty is low, management may opt for the
mechanistic structure which offers the highest degree of
managerial control.

Environment & Organization Structure

II.
Formalization & environmental uncertainty are
inversely related.
Stable environments lead to high formalization.
This is because stable environments have a
minimal need for rapid response.

Environment & Organization Structure

III.
Centralization is affected by the environment. If the
environment is large and multi-faceted, it becomes
difficult for Management to monitor. Therefore, the
structure tends to become decentralized like the
marketing function.
If there are large number of customers and their needs
are prone to rapid changes, management must respond
quickly if it wants to retain them. Therefore, decisions
will have to be taken by the local marketing managers
who are close to the customers.

Environment & Organization Structure

IV.
In the present business environment marked by
pervasive use of Information Technology, Management
can
reduce
formalization
and
become
more
decentralized, thus making their organization more
organic without giving up control.
There will be fewer managers and hence fewer levels in
the hierarchy.

How to Face Uncertain Environment? I

Organizations
should
be
less
formal,
more
decentralised and more reliant on mutual adjustment.
Negotiation with various actors on the Environment
stage like Customers, Suppliers, Unions may also
make the environment favourable.
Formation of Alliances and Joint Ventures is another
way to alter the pattern of inter-dependence.

How to Face Uncertain Environment?

II
Initiating recruitment action for
managers to handle the situation.

more

suitable

Diversification and divestment is another method to

handle uncertainty.
Advertising & Public Relations.
Political Activity & Lobbying.
Formation of trade Associations.

How to Face Uncertain Environment?

III

Leadership at all levels is an excellent way to interact

with uncertain environment. This has to be cultivated
on a continuing basis.
If the top leadership of an organization is fumbling
and faltering then a new top leader should be brought
to improve the situation. A visionary and courageous
leader with proven track record of success may
change the situation quickly which many other
methods will take a longer time to do.

Relationship between Environmental

Uncertainty and Organizational Structure.
Environmental
Uncertainty

Low

Mechanistic
Structure

Low Differentiation
Low Integration
Centralized Decision
Making
Standardization

High

Organic Structure
Complex Structure
High Differentiation
High Integration
Decentralized Decision
Making
Mutual Adjustment

Conclusion.
Adaptive Capacity is the ideal quality of a manager to
handle
organizations
environment
marked
by
uncertainty, complexity and volatility.
It is the ability to understand the context and to
recognize and seize opportunities with confidence and
optimism.
Organizational Environment will always be dynamic but a
timely and proper response is the answer.

Questions?

Thank you!